Prompt paper filing preserves a rejected e-filed return

Plain-English summary

A corporation electronically transmitted an amended return before the assessment period expired, but the IRS system rejected it because that tax year was no longer accepted electronically. The taxpayer then sent a signed paper amended return by certified mail within ten days and included an explanation and a copy of the rejection. Chief Counsel concluded that the taxpayer substantially complied with Notice 2010-13 and Publication 4163. Although the taxpayer had no recorded e-Help case number, contacting the desk could not have solved the technological barrier, and no waiver was required once the platform stopped accepting that year. Under these unusual facts, the paper amended return was timely filed.

Ruling snapshot

• Question: Was the paper amended return timely after a timely electronic transmission was rejected because the IRS system no longer accepted that tax year?
• Outcome: Advice given
• Key authorities: IRC §§ 6501, 7502, 7503; Notice 2010-13; Publication 4163

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       memorandum
       Number: 201545017
       Release Date: 11/6/2015
       CC:PA:01:MEHara                                Third Party Communication: None
       POSTF-116085-15                                Date of Communication: Not Applicable

UILC: 6511.09-00

date: July 27, 2015

 to:   Associate Area Counsel (Denver)
       (Large Business & International)
       CC:LBI

from: Blaise Dusenberry
Senior Technician Reviewer, Branch 1
(Procedure & Administration)
CC:PA:2

subject: Timeliness of Rejected Amended e-filed Return

       This memorandum responds to your request for assistance. This advice may not be
       used or cited as precedent.

       Taxpayer        =   ----------------------------------------
       A               =   ------------
       B               =     -----------
       C               =   ------------
       D               =       --------
       E               =       --------
       Date 1          =   ----------------------------
       Date 2          =   ----------------------------
       Date 3          =   ----------------------------
       Date 4          =   ----------------------------
       Date 5          =   ----------------------------
       Date 6          =   -------------------
       Date 7          =   ----------------------------
       Partner         =   ------------------------------------------------------------
       Statement       =   ------------------------------------------------------------------------------------------
                           ------------------------------------------------------------------------------------------

POSTF-116085-15 2

                                      ISSUE

Under the unique facts of this case, did the taxpayer timely file its 2010 amended
federal income tax return.
CONCLUSION

Yes, under the unique facts of this case, the taxpayer timely filed its 2010 amended
federal income tax return because the amended return would have been timely filed at
the time the electronic amended return was transmitted to the Internal Revenue Service
(Service) and rejected, and the paper amended return was postmarked within ten days
of the date of the Service’s e-file rejection notice. Although in general, taxpayers should
contact the e-Help desk and make a waiver request when filing an amended return on
paper, no waiver request is required for an amended Form 1120 where the Service no
longer can accept such a return electronically.

                                 BACKGROUND

2012 RETURN ADJUSTMENTS
The taxpayer files a consolidated Form 1120, U.S. Corporation Income Tax Return, on
a calendar year basis. The taxpayer’s federal income tax return for 2012 is currently
under audit by Exam. During the audit, the taxpayer submitted adjustments to Exam for
its 2012 tax return. The taxpayer’s adjustments for 2012 included the use of section 41
research credit carryforwards from its 2010 and 2011 amended returns. Specifically,
the taxpayer is claiming that it is entitled to carry forward $A of research credits to 2012
from 2010. The taxpayer is also claiming that it is entitled to carry forward $B out of a
total of $C of research credits from 2011 to 2012. In addition, the taxpayer increased its
alternative minimum tax (“AMT”) credit carryforward to 2012 by $D due to the
amendment of its 2010 return. Finally, the taxpayer decreased its net operating loss
carryforward to 2012 by $A due to the amendment of its 2010 return.

The taxpayer received a six month extension to file its 2010 Form 1120. The extended
due date was September 15, 2011. The taxpayer filed its 2010 original return
electronically on Date 1.

2010 AMENDED RETURN ADJUSTMENTS
The taxpayer filed its 2010 amended return to claim research credits in the amount of
$A based on the alternative simplified method under Treas. Reg. § 1.41-9T. Under this
method, no deduction was allowed for certain research expenses equal to the amount
of the credit. Therefore, the taxpayer increased its taxable income by $A on the 2010
amended return. This increase to taxable income resulted in an increase of the
taxpayer’s net operating loss utilized by $A and triggered additional AMT tax of $D. The
2010 amended paper return included a payment of $E related to the changes in tax due
from these adjustments.
POSTF-116085-15 3

FILING OF THE 2010 AMENDED RETURN
The taxpayer attempted to file a 2010 amended return electronically on Date 2. The
taxpayer received notification that the electronically submitted return was rejected. The
amended return was rejected because when the taxpayer attempted to file its return the
Modernized e-file platform was no longer accepting 2010 returns. Me-F accepts the
current year Form 1120 and two prior years. As a result, the taxpayer then mailed the
2010 amended return via certified mail on Date 3. Included with the mailed return was a
statement that the electronic transmission was rejected and therefore the taxpayer was
filing a paper return. The taxpayer also included a copy of the “RS Electronic Filing
Reject View” with the paper return. The 2010 amended paper return was received by
the Ogden Service Center on Date 4.

SERVICE CENTER ACTIONS
The Ogden Service Center determined that the taxpayer’s statute of limitations on
assessment for 2010 expired on Date 5, which was three years from the filing date of
the original return. Because the Ogden Service Center received the taxpayer’s 2010
amended paper return with additional tax liability due on Date 4, which was after the
Date 5 statute, it rejected the amended return and posted the payment of $E to the
taxpayer’s account but did not make an assessment. The taxpayer’s transcript shows a
payment of $E posted on Date 3. In rejecting the return, it appears the Ogden Service
Center was relying on the reasoning provided in Issue 2 of Service Center Advice
Memoranda 1998-001.

On Date 6, the Ogden Service Center sent the taxpayer a Letter 2765C. The letter
appears to contain numerous errors, including the tax period (the letter refers to 2009
rather than 2010) and date of correspondence from the taxpayer (the letter refers to
Date 7 rather than Date 3). However, it appears that the intent of the letter was to
inform the taxpayer that its 2010 amended return was rejected and the payment of $E
was untimely.1 The letter indicates that, as a result, the Service will not assess tax for

1
The Ogden Service Center and the TEFRA Technical Unit are relying on Service Center Advice
Memoranda 1998-001 (the “1998 SCA”) in concluding that the taxpayer’s 2010 amended paper return
was not timely filed and therefore the IRS may not make the assessment. Among the issues in the 1998
SCA was Issue 2, which was whether the Service Center can make assessments for amended returns
mailed on or before the expiration of the period of limitation, but received after the period has expired.
The conclusion to Issue 2 was that Service Centers cannot make assessments based on amended
returns received after the period of limitations has run, even if the amended return was mailed on or
before the expiration date. This conclusion was reached because section 7502 applies only to returns
“required to be filed.” The 1998 SCA reasoned that section 7502 does not apply to timely mailed
amended returns that show additional tax due because these returns are not required to be filed by any
internal revenue law.

We question the conclusion reached in SCA 1998-001 that section 7502 does not apply to timely mailed
amended returns that show additional tax due because these returns are not required to be filed by any
internal revenue law. Although citing Jacobson v. Commissioner, 73 T.C. 610 (1979), the SCA ignores
the holding in that case that provided:
POSTF-116085-15 4

the additional income reported and the payment will be returned to the taxpayer in a
separate letter. The letter also states that the law requires the Service to deduct from
the amount of the payment any other debts the taxpayer may owe. Exam sent out an
email inquiry to the manager from the Ogden Service Center who signed the letter to
confirm that the letter relates to the 2010 amended return.

REQUEST FOR ADVICE
Exam requested Associate Area Counsel (LBI) assistance as to whether rejection of the
2010 amended paper return is proper and if so whether the payment of $E should be
returned to the taxpayer. Specifically, Exam inquired as to how section 7502, section
7503, and Notice 2010-13, 2010-4 I.R.B. 327 apply. Exam has also asked whether the
taxpayer may carry forward its research credits from 2010 to future years if the 2010
amended paper return is rejected and the $E payment is returned to the taxpayer.
Finally, Exam asked about the proper treatment of the AMT credit carryforward and the
net operating loss carryforward if the 2010 amended paper return is rejected and the $E
payment is returned to the taxpayer.

In considering these issues, Associate Area Counsel (LBI) asked Exam if the taxpayer
contacted the e-Help Desk for assistance in correcting the rejected electronic return
before filing a paper return and whether the taxpayer got authorization to file its 2010
amended return by paper. Associate Area Counsel (LBI) also asked whether the
taxpayer received a case number from the e-Help Desk. Exam contacted the taxpayer
for information related to these questions. The taxpayer’s representative, Partner,
responded as follows: “Statement.”

On June 16, 2015, Exam emailed the Ogden Service Center and requested that no
further correspondence be sent to the taxpayer with respect to its 2010 tax year and
that the payment not be returned to the taxpayer until a determination was made as to
the timeliness of the 2010 amended return. On June 19, 2015, Associate Area Counsel
(LBI) also emailed the Ogden Service Center and requested that the payment not be
released until a determination was made.

  Respondent contends that section 7502(a) is not applicable to “amended” returns. The plain
  language of the statute indicates otherwise. Section 7502(a) encompasses “any return” required
  to be filed by a prescribed date but which is delivered subsequent to that date. (Emphasis
  supplied.) Respondent has not offered any authority for his position, nor does the legislative
  history of section 7502 support such a narrow reading. H. Rept. 6958, 89th Cong., 2d Sess.
  (1966), 1966-2 C.B. 803, 809. We hold that “any return” means just that, and the absence of
  language explicitly mentioning amended returns does not foreclose petitioner's use of this
  section.

  Id. at 615 (Citations omitted).

POSTF-116085-15 5

                                     LAW AND ANALYSIS

FILING DATE OF TAXPAYER’S ORIGINAL 2010 RETURN
Income tax returns of corporations made on the basis of the calendar year must be filed
by the 15th day of March following the close of the calendar year. I.R.C. § 6072(b).
Corporations are allowed an automatic six-month extension of time to file income tax
returns if certain specified requirements are met. I.R.C. § 6081; Treas. Reg. § 1.6081-
3.

In general, the period of limitations on assessment is within three years after the return
was filed. I.R.C. § 6501(a). In the case of an amended return showing additional tax
due that is filed within the 60-day period ending on the day on which the time for
assessment would otherwise expire, the period for assessment of such additional
amount shall not expire before the day 60 days after the day on which the IRS receives
the amended return. I.R.C. § 6501(c)(7).

A return filed on an extension is treated as filed on the day it is received, in the case of a
return received on or before the extended due date, or on the postmark date, in the
case of a return mailed before but received after the extended due date. See, e.g., First
Charter Financial Corp. v. United States, 669 F.2d 1342 (9th Cir. 1982); Pace Oil Co. v.
Commissioner, 73 T.C. 249, 255 (1979).2

In this case, the original due date of the taxpayer’s 2010 return was March 15, 2011.
Since the taxpayer received a six month extension, the extended due date was
September 15, 2011. The taxpayer electronically filed its original 2010 return which was
received by the Service on Date 1. Under First Financial Corp. and Pace Oil, the date
of filing of the original return was Date 1.

TIMELY FILING OF REJECTED E-FILED RETURNS
The taxpayer attempted to electronically file its 2010 amended return on Date 2, which
was prior to the three year expiration on the assessment statute. The taxpayer received
notice that the electronic transmission was rejected. The taxpayer’s representative has
asserted that the e-Help Desk was contacted, but the taxpayer does not have a record

2
Unless an exception applies, a return is typically considered filed on the date the IRS receives it. See,
e.g., Estate of Mitchell v. Commissioner, 103 T.C. 520 (1994), aff’d, 250 F.3d 696 (9th Cir. 2001). One
exception is if a return is received by the Service before the original due date, ignoring extensions. In that
case, the return is deemed filed on the due date rather than the date received. I.R.C. § 6501(b)(1);
Treas. Reg. § 301.6501(b)-1(a). Another exception is if a return is postmarked on or before the due date,
including extensions, but the Service receives it after the due date. In that case, the return is deemed
filed on the date of mailing. I.R.C. § 7502(a)(1); Treas. Reg. § 301.7502-1(a). A third exception is when
the last day prescribed for performing an act under the Internal Revenue Code falls on Saturday, Sunday,
or a legal holiday. In that case, the performance of such act shall be considered timely if it is performed
on the next succeeding day which is not a Saturday, Sunday, or legal holiday. I.R.C. § 7503. As a result,
when the due date for a return, including extensions, falls on a weekend or holiday and a taxpayer mails a
return on the next day that is not a weekend or holiday, the date of mailing is the deemed filing date.
POSTF-116085-15 6

of the contact or a case number. The taxpayer mailed the 2010 amended return on
Date 3, and the IRS received it on Date 4.

NOTICE 2010-13 AND PUBLICATION 4163
Notice 2010-133 provides rules regarding the timely filing of rejected e-filed returns.
Notice 2010-13 provides that if the return required to be filed electronically is transmitted
on or before the due date (including extensions) and is rejected, but the electronic
return originator or the filer comply with certain requirements for timely submission of
the return, the return will be considered timely filed and any elections attached to the
return will be considered valid.

Notice 2010-13 provides that for returns filed on or after January 1, 2010, the Service
will allow the filer 10 calendar days from the date of first transmission to perfect
the return for electronic resubmission. If the electronic return cannot be accepted
for processing electronically, the filer must file a paper return with the Service Center
where it would normally be filed. In order for the paper return to be considered timely, it
must be postmarked by the U.S. Postal Service,4 or delivered to the Service by the later
of the due date of the return (including extensions), or 10 calendar days after the date
the Service last gives notification to the filer that the return has been rejected, as long
as:

      (1) The first transmission was made on or before the due date of the return
      (including extensions) and

      (2) The last transmission was made within 10 calendar days of the first
      transmission.

Notice 2010-13 provides that the paper return must be completed consistent with the
instructions to file the return. Corporations, partnerships, and tax-exempt organizations
that are required to e-file must contact the e-Help Desk for assistance in correcting
rejected returns before filing a paper return. If the taxpayer cannot correct the rejected
return errors, they must receive authorization from the e-Help Desk prior to filing a
paper return.5

Notice 2010-13 also provides that if the paper return is postmarked after its due date
(including extensions), then the paper return should include an explanation of why the
return is being filed after the due date and include a copy of the Service’s final rejection
3
2010-4 I.R.B. 327.
4
Under Notice 2010-13, the return may also be postmarked by a foreign postal service, or in the case of
private delivery services designated by Notice 2004-83, have a postmark date as determined by Notice
97-26.
5
In this case, however, the taxpayer is not otherwise required to complete a request for waiver of the
electronic filing requirement.
POSTF-116085-15 7

notification. Similarly, if the paper return is being submitted by a corporation,
partnership, or tax-exempt entity that is required to e-file the return, then the return
should include an explanation of why the return is being filed in paper form and include
a copy of the Service’s final rejection notification. A paper return filed in accordance with
the above procedures will be considered timely filed, any elections attached to the
return will be considered valid, and no penalty will be imposed for failing to e-file the
return.

Similarly, Publication 4163, Modernized e-File (MeF) Information for Authorized IRS e-
file Providers for Business Returns (Rev. 1-2014), restates the rules regarding rejected
e-filed returns and provides that for those returns to be considered timely filed, the
paper return must be postmarked by the later of the due date of the return, including
extensions, or 10 calendar days after the date the Service last gives notification the
return was rejected.

Publication 4163 advises filers to follow the following steps “to ensure that the paper
return is identified as a rejected electronic return and the taxpayer is given credit for the
date of the first rejection within the 10-day transmission perfection period”:6

       1. The taxpayer must call the IRS e-help Desk, 1-866-255-0654, to advise that
       they have not been able to have their return accepted. The e-help Desk will
       provide an e-Case number to the taxpayer.

       2. The taxpayer should prepare the paper return and include the following:

       •   An explanation of why the paper return is being filed after the due date
       •   A copy of the reject notification; and
       •   A brief history of actions taken to correct the electronic return.

       3. Write in red at the top of the first page of the paper return - REJECTED
       ELECTRONIC RETURN – (DATE). The date will be the date of first rejection
       within the 10-day transmission perfection timeframe.

       4. The paper return must be signed by the taxpayer. The PIN that was used on
       the electronically filed return that was rejected may not be used as the signature
       on the paper return.

If the return is rejected, it is recommended that the following documents are retained:

       •   A copy of the Submission Receipt received from IRS (Transmitter),
       •   A copy of the rejected Transmission File (Transmitter),
       •   A copy of the rejected Acknowledgement (Everyone).7

6
Pub. 4163 at 59 (Rev. 1-2014).
7
Id. at 59-60.
POSTF-116085-15 8

Taxpayer had an electronic filing requirement under Treas. Reg. § 301.6011-5.8 If a
taxpayer is required to file their Form 1120 electronically, then they generally must file
their amended return electronically.9 The Service’s Modernized e-file Platform,
however, will only accept returns for the most recent tax year and two prior tax years. For
that reason, in cases where the Me-F Platform will no longer accept an amended Form
1120, no waiver is needed to file the amended return on paper.10

In this case, the taxpayer mailed a paper return to the Ogden Service Center within 10
calendar days after the date the Service gave notification the return was rejected.
Included with the mailed return was a statement that the electronic transmission was
rejected and therefore the taxpayer was filing a paper return. The taxpayer also
included a copy of the “RS Electronic Filing Reject View” with the paper return.

It is not clear whether the taxpayer or its Authorized e-file Provider contacted the e-Help
desk. Neither the taxpayer nor the Service has a record of obtaining an e-Case number
for the paper filed return. Although in general, taxpayers should contact the e-Help
desk to obtain help in perfecting their e-Filed return, to obtain an e-Case number, and
receive permission to paper file their returns, such an attempt would be fruitless in this
case when the Modernized e-File Platform could not accept the amended return.
Moreover, guidance on the IRS website advises that no waiver request is required for
an amended Form 1120 where the Me-F Platform no longer accepts amended return.

8
Treas. Reg. § 301.6011-5 generally require corporations with $10 million or more in total assets and that
file 250 or more returns a year to electronically file their Form 1120 and Form 1120X. The return preparer
mandate under Treas. Reg. § 301.6011-7 does not apply because that mandate only applies to the Form
1040. See Treas. Reg. § 301.6011-7(b).
9
Treas. Reg. § 301.6011-5(d)(4).
10
See IRS Web Frequently Asked Question page, FAQ B14, http://www.irs.gov/Businesses/e-file-for-
Large-and-Mid-Size-Corporations-Frequently-Asked-Questions-Corporations-Required-to-e-file-Tax-Year-
2014. FAQ B14 states:

      If the corporation is required to file their Form 1120, 1120S, or 1120-F under TD 9363,
      are they also required to e-file any amended or superseding tax returns?

      Yes, if the taxpayer is required to file electronically based on the regulations, then they
      must also electronically file their TY2012, 2013 and 2014 amended and superseding
      returns. A taxpayer must receive an approved waiver to file that particular return on
      paper. In Processing Year 2015, MeF will process TY2012, 2013 and 2014 returns. Only
      those tax years may be filed electronically in Processing Year 2015. TY 2011 and prior
      returns cannot be filed electronically after December 27, 2014. Any amended TY 2011
      return must be filed on paper, since the MeF system can no longer process these
      returns. No waiver is needed to file the amended TY2011 on paper. (Emphasis added).

POSTF-116085-15 9

Although contacting the e-Help desk would have ensured “that the paper return is
identified as a rejected electronic return and the taxpayer is given credit for the date of
the first rejection within the 10-day transmission perfection period,”11 in our view, the
failure to do so in this case should not deprive the taxpayer of the administrative grace
afforded in Notice 2010-13 and Publication 4163 of the additional 10-day period to
timely file a return when a taxpayer is unable to e-file a return due to technological
barriers. No waiver request was required, the taxpayer substantially complied with the
requirements of Notice 2010-13 and Publication 4163, and the failure by the taxpayer to
electronically file their amended 2010 return was caused by the Service’s failure to
accept an amended return during a period which would have been timely for paper filed
returns.

Accordingly, it is our view that under the unique facts of this case, the taxpayer timely
filed its 2010 amended federal income tax return because the amended return would
have been timely filed at the time the electronic amended return was transmitted to the
Service and rejected, and the paper amended return was postmarked within ten days of
the date of the Service’s e-file rejection notice.

Please call (202) 317-5417 if you have any further questions.

11
Pub. 4163 at 59.